During the Great Depression, Britain's economy was failing, as they were losing much of their income due to the war. Keynes suggested that the government lower taxes, in order to give the citizens, as well as industrialists, time to gain back their income. Despite what Keynes said, officials at the treasury made a decision to finance the war through loans from the United States instead. This caused Britain to become one of the many allied countries dependent on the United States for income. Eventually, the US pulled out of this agreement and Britain's economy had a big downfall, which created disagreement between Keynes and the Prime Minister Lloyd George because neither of them agreed with the other. After four years of battle, the allies were winning and many began to hope the war would end soon. On November 11th, 1918, the Armistice was signed in France, which ended the war. Through this misery, Keynesian economics were created in order to understand the recessions of economies.
The Theory:
Keynesian Economics is a theory relating to the total spending done by consumers in the economy, which affects output; the quantity of goods or services produced in a given period, and inflation; the rate at which the general level of prices for goods and services is rising, and how this affects purchasing power. A system to control these things was created by economist John Maynard Keynes in the 1930's, in an attempt to understand the great depression,to bounce back from it. In order to stabilize the economy, Keynes pushed to increase government expenditures, and lower taxes, to assist local companies in being able to produce their products at a steady rate.
Government Involvement:
Government plays an important role in maintaining economic recessions. Keynes made a suggestion that a poor overall demand could build up to long fragments of time where many people are unemployed. In order to increase demand, an economy's output must come from one of these options; consumption, investment, government purchases, and net exports. During a recession, consumers do not desire to play a part in consumption, which causes the producers to not produce as much of their products, if any more of their products, causing the government to take over their role as producers. Keynes demonstrates that in economics, state intervention ( government interruption ), is needed in order to regulate these slumps or highs, to correct market failures.
The Cons of this Theory:
Although the economy cannot fix itself without government intervention, sometimes their interference can be negative. This economic system can create shortages, and the the prices tend to fall slower than wages do. In addition, the economy is basically unstable, as markets are not functioning without assistance from the government. This economic system does benefit the economy, but for only a short period of time, as Keynes himself states that " In the long run, we are all dead " . One belief about this system is that recession and booms are natural, as well as that government interference would only create more issues. Another negativity, is that the Keynesian economic theory can create debt, due to the fact that the government is using their deficit money to help other services; and they are lowering taxes. This is allowing drainage of their revenue, which is losing a lot of the governments money. In addition, the government struggles to gain back the money that they have lost, as people will not vote for a government system that raises taxes. For this reason, democratic systems do not use the Keynesian economic system, as they would lose money. Keynesian economics also has long term effects on youth today, as the economy is creating a big pile of debt, which will eventually require future generations to pay it off, requiring the government to raise taxes. Another way this system affects youth is through the governments spending, as they will not have as much money from their expenditure to spend on social services such as pension plans and insurance, which will cause the adults of that age to pay more for insurance, and not receive as much money for their retirement.
~Crain, Cynthia, and Dwight R. Lee. John Maynard Keynes. Greensboro, NC: Morgan Reynold Publishing, 2010.
~ Jahan, Sarwat, Ahmed Suber Muhamed, and Chris Papageorgiou. "What Is Keynesian Economics." What Is Keynesian Economics? - Back to Basics - Finance & Development, September 2014. September 2014. Accessed November 16, 2017. http://www.imf.org/external/pubs/ft/fandd/2014/09/basics.htm.
~Khanacademy. "Risks of Keynesian thinking | Aggregate demand and aggregate supply | Macroeconomics | Khan Academy." YouTube. March 19, 2012. Accessed November 16, 2017. https://www.youtube.com/watch?v=EVSkf7l7EuI.
Keynesian Economics II
Creation of the Keynesian Economic Theory:
During the Great Depression, Britain's economy was failing, as they were losing much of their income due to the war. Keynes suggested that the government lower taxes, in order to give the citizens, as well as industrialists, time to gain back their income. Despite what Keynes said, officials at the treasury made a decision to finance the war through loans from the United States instead. This caused Britain to become one of the many allied countries dependent on the United States for income. Eventually, the US pulled out of this agreement and Britain's economy had a big downfall, which created disagreement between Keynes and the Prime Minister Lloyd George because neither of them agreed with the other. After four years of battle, the allies were winning and many began to hope the war would end soon. On November 11th, 1918, the Armistice was signed in France, which ended the war. Through this misery, Keynesian economics were created in order to understand the recessions of economies.
The Theory:
Keynesian Economics is a theory relating to the total spending done by consumers in the economy, which affects output; the quantity of goods or services produced in a given period, and inflation; the rate at which the general level of prices for goods and services is rising, and how this affects purchasing power. A system to control these things was created by economist John Maynard Keynes in the 1930's, in an attempt to understand the great depression,to bounce back from it. In order to stabilize the economy, Keynes pushed to increase government expenditures, and lower taxes, to assist local companies in being able to produce their products at a steady rate.
Government Involvement:
Government plays an important role in maintaining economic recessions. Keynes made a suggestion that a poor overall demand could build up to long fragments of time where many people are unemployed. In order to increase demand, an economy's output must come from one of these options; consumption, investment, government purchases, and net exports. During a recession, consumers do not desire to play a part in consumption, which causes the producers to not produce as much of their products, if any more of their products, causing the government to take over their role as producers. Keynes demonstrates that in economics, state intervention ( government interruption ), is needed in order to regulate these slumps or highs, to correct market failures.
The Cons of this Theory:
Although the economy cannot fix itself without government intervention, sometimes their interference can be negative. This economic system can create shortages, and the the prices tend to fall slower than wages do. In addition, the economy is basically unstable, as markets are not functioning without assistance from the government. This economic system does benefit the economy, but for only a short period of time, as Keynes himself states that " In the long run, we are all dead " . One belief about this system is that recession and booms are natural, as well as that government interference would only create more issues. Another negativity, is that the Keynesian economic theory can create debt, due to the fact that the government is using their deficit money to help other services; and they are lowering taxes. This is allowing drainage of their revenue, which is losing a lot of the governments money. In addition, the government struggles to gain back the money that they have lost, as people will not vote for a government system that raises taxes. For this reason, democratic systems do not use the Keynesian economic system, as they would lose money. Keynesian economics also has long term effects on youth today, as the economy is creating a big pile of debt, which will eventually require future generations to pay it off, requiring the government to raise taxes. Another way this system affects youth is through the governments spending, as they will not have as much money from their expenditure to spend on social services such as pension plans and insurance, which will cause the adults of that age to pay more for insurance, and not receive as much money for their retirement.
Bibliography:
~ Blinder, Alan S. "Keynesian Economics." Keynesian Economics: The Concise Encyclopedia of Economics | Library of Economics and Liberty. Accessed November 16, 2017. http://www.econlib.org/library/Enc/KeynesianEconomics.html.
~Crain, Cynthia, and Dwight R. Lee. John Maynard Keynes. Greensboro, NC: Morgan Reynold Publishing, 2010.
~ Jahan, Sarwat, Ahmed Suber Muhamed, and Chris Papageorgiou. "What Is Keynesian Economics." What Is Keynesian Economics? - Back to Basics - Finance & Development, September 2014. September 2014. Accessed November 16, 2017. http://www.imf.org/external/pubs/ft/fandd/2014/09/basics.htm.
~Khanacademy. "Risks of Keynesian thinking | Aggregate demand and aggregate supply | Macroeconomics | Khan Academy." YouTube. March 19, 2012. Accessed November 16, 2017. https://www.youtube.com/watch?v=EVSkf7l7EuI.